Here's the Average American's Tax Refund -- How Do You Compare?

Tax season is now underway, and millions of Americans are filing their returns -- and awaiting refunds. The average American who gets a tax refund receives several thousand dollars. Here's a rundown of the recent data, how you might be able to boost your refund, and why a big tax refund might not be such a good thing.

The average American's tax refund

We obviously don't know what the average American's tax refund will be in 2024 -- after all, tax season is just getting started.

But here's what we do know. For 2022 tax returns (refunds people got in 2023), the average refund was $2,903. This was down significantly from the year before when the average refund was $3,263. There are a few potential reasons for the decline, and most have to do with the lower availability of COVID-19 relief in the 2022 tax year versus 2021. The decrease of the Child Tax Credit and the Child and Dependent Care Credit were particularly big contributing factors.

While it's impossible to know for sure what the average refund will be in 2024, we know that the standard deduction has increased, certain refund-driving tax credits (like the Earned Income Tax Credit) have expanded, and the tax bracket income ranges have become higher. So, most experts believe that refunds will be similar to last year's, or slightly higher.

Ways you can boost your tax refund

The tax return you're filing at some point before April 15 is based on your income in 2023. Since it's no longer 2023, there are very few ways to increase your tax refund now.

Having said that, perhaps the most effective way to boost your refund is to contribute to a traditional IRA if you haven't already maxed your 2023 contributions. The IRS allows you to contribute as much as $6,500 to an individual retirement account for the 2023 tax year ($7,500 if you're 50 or older), and you can make your contributions until the tax deadline, so you can still take advantage. If you qualify, you can deduct traditional IRA contributions on your tax return.

Not only can this potentially boost your refund by $1,000 or more, but you'll also be setting yourself up for greater financial security later in life.

Did you get a big refund? That might not be such a good thing

I get it -- it's nice to get a check for a few thousand dollars once a year, especially as you're just bouncing back financially from your holiday spending.

On the other hand, it's important to realize what a tax refund really is. If you're getting, say, $3,000 back, that means you essentially gave the government an interest-free loan by allowing it to withhold more money from your paycheck than it should have. In other words, instead of getting back $3,000, you could have had an additional $115 on each of your biweekly paychecks.

The point is that if you truly look forward to getting your tax refund each year, or if you find it to be an effective component of your saving and budgeting strategy, there's a solid argument to be made in favor of leaving things as is. But if you'd rather just have higher paychecks, it could be a good time to visit your company's payroll department to make some adjustments to your withholdings.